Financial Statements VIA VAREJO S.A.

Transcription

1 Financial Statements VIA VAREJO S.A. December 31, 2013 with Independent Auditors Report on the Financial Statements

2 Financial Statements Index Independent Auditors Report on the Financial Statements 1 Financial Statements Balance sheets.. 3 Statements of income.. 5 Statements of comprehensive income.. 6 Statements of changes in equity 7 Statements of cash flows. 8 Statements of value added

3 (A free translation from Portuguese into English of Financial Statements prepared in Brazilian currency in accordance with accounting practices adopted in Brazil, and of Consolidated Financial Statements prepared in Brazilian currency in accordance with International Financial Reporting Standards (IFRS), issued by International Accounting Standards Board IASB and accounting practices adopted in Brazil). Independent Auditors Report on the Financial Statements To the Shareholders, Board of Directors and Officers of São Caetano do Sul, State of São Paulo Introduction We have audited the accompanying individual and consolidated balance sheet of ( Company ) as of December 31, 2013, and the related consolidated statements of income, of comprehensive income, shareholders equity, and cash flows for the year then ended, including the summary of main accounting practices and explanatory information. Management's responsibility for the financial statements Management is responsible for the preparation and fair presentation of the individual financial statements in accordance with accounting practices adopted in Brazil, and for the consolidated financial statements in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board - (IASB), and in accordance with accounting practices adopted in Brazil, and for such internal control as Management determines is necessary to enable the preparation of these financial statements that are free from material misstatement, whether due to fraud or error. Independent auditor s responsibility Our responsibility is to express an opinion on these financial statements based on our audit, which was conducted in accordance with Brazilian and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement in the financial statements, whether due to fraud or error. In making those risk assessments, the auditor onsiders internal control relevant to the preparation and fair presentation of the Company s financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. An audit also includes evaluating the appropriateness of accounting practices used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 1

4 Opinion on individual financial statements In our opinion, the individual financial statements referred to above present fairly, in all material respects, the financial position of as of December 31, 2013, and the performance of its operation and its cash flows for the year then ended, in accordance with accounting practices adopted in Brazil. Opinion on consolidated financial statements In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of as of December 31, 2013, and the consolidated performance of its operations and its consolidated cash flows for the year then ended, in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board - (IASB) and accounting practices adopted in Brazil. Emphasis of matter Measurement of investments in subsidiaries, associates and joint ventures by the equity method As mentioned in Note 2, the individual financial statements were prepared in accordance with accounting practices adopted in Brazil. In the case of, these accounting practices differ from IFRS, applicable to separate financial statements, solely with respect to the measurement of investments in subsidiaries, associates and jointly-controlled subsidiaries under the equity method, while such investments would be measured at cost or fair value for IFRS purposes. Our opinion is not qualified in respect of this matter. Other matters Statements of value added We have also audited the individual and consolidated statement of value added (SVA), for the year ended December 31, 2013, prepared under Company management responsibility, whose presentation is required by Brazilian Corporation Law for publicly-held companies and as supplementary information under IFRS, whereby no statement of value added presentation is required. These statements have been subject to the same audit procedures previously described and, in our opinion, are fairly presented in all material respects, in relation to the overall financial statements. São Paulo, February 12, 2014 ERNST & YOUNG Auditores Independentes S.S. CRC-2SP015199/O-6 Drayton Teixeira de Melo Accountant CRC-1SP236947/O-3 Douglas Travaglia Lopes Ferreira Accountant CRC-1SP218313/O-4 2

5 Balance sheets (In thousands of Reais) Assets Current assets Parent Company Consolidated Notes 12,31, ,31, ,31, ,31,2012 Cash and cash equivalents 7 3,477, ,188 3,508,878 2,581,134 Financial investments ,453 - Receivables securitization fund 9-24, Accounts receivable 8 2,135,599 70,090 2,136,142 2,222,688 Inventories 10 2,278, ,317 2,335,994 2,697,498 Recoverable taxes , , , ,924 Related parties , , , ,401 Other current assets ,833 71, , ,866 Held-for-sale non-current assets 15,057-15,489 - Total current assets 8,853,593 1,521,692 8,984,634 8,512,511 Non-current assets Accounts receivable 8 114, , ,499 Recoverable taxes , , ,848 1,000,456 Judicial deposits , , , ,532 Deferred income taxes , , , ,119 Related parties , , , ,275 Other non-current assets 12 21,737 15,967 21,737 26,249 Investments 14 1,490,200 1,836, ,312 92,483 Property and equipment , ,397 1,149,500 1,027,349 Intangible assets ,245 15, , ,999 Total non-current assets 4,446,923 3,233,862 4,473,189 3,569,961 Total assets 13,300,516 4,755,554 13,457,823 12,082,472 The notes are an integral part of these financial statements. 3

6 Liabilities Balance sheets (In thousands of Reais) Parent Company Consolidated Notes 12,31, ,31, ,31, ,31,2012 Current liabilities Suppliers 3,078, ,166 3,149,899 3,132,545 Loans and financing 17 3,045, ,954 3,055,807 2,791,834 Payroll and related charges payable 304,058 55, , ,365 Taxes in installments and contributions payable ,580 78, , ,042 Dividends payable 296 4, ,749 Related parties 13 66,919 33,130 54, ,777 Taxes payable in installments 3,707 3,480 3,707 3,467 Deferred revenue 23 77,722 25,045 77,722 74,313 Amounts collected on behalf of third parties 214,717 51, , ,653 Other 398,560 96, , ,596 Total current liabilities 7,717,457 1,053,867 7,809,434 7,439,341 Non-current liabilities Loans and financing , , , ,255 Provision for legal claims , , , ,700 Related parties 13 61,066 56, Tax payable in installments 19 39,910 41,506 39,910 41,514 Deferred income taxes ,171 3,384 Deferred revenue , , , ,690 Other 4,637 7, Total non-current liabilities 1,632, ,973 1,697,586 1,647,543 Equity 24 Capital stock 2,895,453 2,895,453 2,895,453 2,895,453 Capital reserves 359,484 44, ,484 44,202 Profit reserves 695,866 15, ,866 15,059 Equity attributable to owners of the parent 3,950,803 2,954,714 3,950,803 2,954,714 Non-controlling interest ,874 Total equity 3,950,803 2,954,714 3,950,803 2,995,588 Total liabilities and equity 13,300,516 4,755,554 13,457,823 12,082,472 The notes are an integral part of these financial statements, 4

7 Statements of Income (In thousands of Reais) Notes Parent Company Consolidated (restated) Net revenue 25 21,742,691 4,910,861 21,755,945 19,454,710 Cost of sales 26 (15,053,431) (3,629,351) (15,055,825) (13,579,759) Gross profit 6,689,260 1,281,510 6,700,120 5,874,951 Operating expenses (4,405,095) (915,611) (4,419,044) (3,831,407) Selling expenses 26 (540,263) (177,023) (537,488) (803,305) General and administrative 26 (126,642) (29,758) (130,161) (152,944) Depreciation and amortization 610,274 18, ,806 19,292 Other operating income, net 27 2,227, ,035 2,222,233 1,106,587 Operating profit (558,250) (105,791) (550,715) (574,336) Finance expenses, net 28 7, ,470 15,132 (454) Equity results of investees 14 1,677, ,714 1,686, ,797 Profit before income taxes Income tax and social contribution 20 (517,489) (38,005) (512,024) (212,543) Net income from continuing operations 1,159, ,709 1,174, ,254 Net income from discontinued operations - - (30,107) 2,905 Net income for the year 1,159, ,709 1,144, ,159 Earnings per share 0,90 0, Owners of the parent continuing operations 1,174, ,254 Owners of the parent discontinued operations (15,084) 1,455 Non-controlling interest continuing operations - - Non-controlling interest discontinued operations (15,023) 1,450 1,144, ,159 The notes are an integral part of these financial statements, 5

8 Statements of comprehensive income (In thousands of Reais) Parent Company Consolidated Net income for the year 1,159, ,709 1,144, ,159 Other comprehensive income Comprehensive income for the year 1,159, ,709 1,144, ,159 The notes are an integral part of these financial statements, 6

9 Statements of changes in equity (In thousands of Reais) Attributable to the owners of the parent Capital Reserve Profit Reserve Capital stock Special goodwill reserve Transactions with owners of the parent Tax incentives Granted options Legal Unrealiz ed Investments Retained earnings/ Accumulated losses Total Noncontrolling interest Total Balance at December 31, ,895, ,538 (273,530) 8,333 28, (300,968) 2,636,622 38,893 2,675,515 Stock options , , ,624 Net income for the year , ,709 1, ,159 Reversal of dividends proposed Legal reserve (987) Transfer to investments reserve ,072 (14,072) Dividends proposed (4,690) (4,690) (28) (4,718) - Balance at December 31, ,895, ,538 (273,530) 8,333 30, ,072-2,954,714 40,874 2,995,588 Stock options ,002 Net income for the year ,159,542 1,159,542 (15,023) 1,144,519 Capital increase , , ,457 Unrealized profit reserve ,002 - (516,002) Legal reserve , (57,977) Investment reserve ,828 (106,828) Deconsolidation of subsidiaries (26,028) (26,028) Secondary offering (88,457) (88,457) - (88,457) Dividends paid (390,278) (390,278) - (390,278) Balance at December 31, ,895, ,538 40,927 8,333 31,686 58, , ,900-3,950,803-3,950,803 The notes are an integral part of these financial statements, 7

10 Statements of cash flows (In thousands of Reais) Operating activities Parent Company (Restated) Consolidated (Restated) Net income for the year 1,159, ,709 1,174, ,254 Net loss from discontinued operation - - (30,107) 2,905 Adjustments Depreciation and amortization 151,440 32, , ,375 Equity pick up (7,747) (286,470) (15,132) 454 Deferred income taxes 331,231 38, ,023 99,023 Adjustment to present value (182) - (55) (10,141) Interest and monetary indexation 329,867 22, , ,199 Provision for legal claims, net 69,880 (9,049) 72,162 (1,804) Share-based payment 594 1, ,624 Allowance for doubtful accounts 442, , ,388 (Gain) /Loss with property and equipment and intangible assets 19,420 (7,171) 20,589 (40,373) (Gain)/Loss with subsidiaries (70,913) - (70,913) - Loss of fixed assets inventory (700,766) - (700,766) - Gain with valuation of investment at fair value (5,988) - (7,916) - Provision for shrinkage 14,718 (7,991) 10,858 (23,942) Other - (35,282) Decrease (increase) in operating assets Accounts receivable (509,061) 7,307 (548,275) 901,638 Recoverable taxes (18,494) (33,791) (144,298) (615,279) Inventories 20,480 5,831 (113,640) 27,125 Dividends received from associates 4,063-1,229 4,083 Securitization fund 25, ,000 (24,319) - Prepaid expenses (18,222) 12,444 (20,787) 11,040 Judicial deposits (77,779) (35,930) (79,994) (37,883) Other assets 33,867 3,892 38,390 (273) Increase (decrease) in operating liabilities Suppliers 886,104 44,609 1,031, ,646 Provision for legal claims (34,854) (10,671) (35,204) (15,903) Payroll, related charges and taxes payable 303,446 41, , ,182 Income taxes paid (157,107) - (160,456) (45,206) Related parties, net (29,659) (177,316) 219, ,754 Other liabilities 48, ,071 14, ,017 Net cash flows from (used in) operating activities 2,209, ,816 2,238,488 2,300,621 8

11 Statements of cash flows (In thousands of Reais) Investing activities Parent Company Consolidated Purchase of property and equipment and intangible assets (322,861) (80,347) (376,191) (328,149) Disposal of property and equipment and intangible assets 54,684 5,289 54,848 65,554 Net cash from acquired subsidiary (212,273) - (211,535) - Net cash from sale of subsidiary 80,000 - (45,375) - Net cash flows used in investing activities (400,450) (75,058) (578,253) (262,595) Financing activities Loans and financing: Proceeds 5,302, ,798 5,306, Principal repayments (5,113,605) (403,323) (5,216,195) ( ) Interest payment (293,391) (34,820) (311,753) ( ) Payments of financial leasing (28,204) - (28,204) (20.776) Cash from merged subsidiary 1,879, Cost of share issue (88,457) - (88,457) - Dividends paid (394,672) - (394,672) - Net cash flows from (used in) financing activities 1,264,338 (36,345) (732,491) (882,660) Net increase in cash and cash equivalents 3,073, , ,744 1,155,366 Cash and cash equivalents at the beginning of the year 404, ,775 2,581,134 1,425,768 Cash and cash equivalents at the end of the year 3,477, ,188 3,508,878 2,581,134 3,073, , ,744 1,155,366 Additional information - items that do not affecting cash: Finance lease 81,265-81,265 3,176 Contribution of controllers (note 32 (b)) 314, ,457 - Capitalization of balance of related parties Proposed dividends receivable - - 3,448 - The notes are an integral part of these financial statements, 9

12 (FREE TRANSLATION INTO ENGLISH FROM THE FINANCIAL STATEMENTS ORIGINALLY ISSUED IN PORTUGUESE) Statements of value added Parent Company Consolidated Revenue Sales of products and services 24,957,782 5,609,906 24,973,683 22,405,545 Allowance for doubtful accounts (442,192) (370) (442,228) (299,702) Other revenue 771,847 11, ,510 15,042 25,287,437 5,621,334 25,293,965 22,120,885 Inputs acquired from third parties Cost of sales, credit operations and services (15,354,561) rendered (4,029,503) (15,309,488) (13,810,940) Materials, energy, outsourced services and other (2,447,941) (513,638) (2,417,513) (2,224,469) (17,802,502) (4,543,141) (17,727,001) (16,035,409) Gross value added 7,484,935 1,078,193 7,566,964 6,085,476 Retentions Depreciation and amortization (151,441) (32,951) (156,219) (188,704) Net value added produced by the company 7,333,494 1,045,242 7,410,745 5,896,772 Received through transfer Equity pick up 7, ,470 15,132 (454) Finance income 257,565 82, , , , , , ,517 Total value added to distribute 7,598,806 1,414,301 7,689,792 6,082,289 Distribution of value added Employees 2,694, , Direct compensation 2,072, , Interest 116,664 14, Benefits 305,571 42, Charges 199,678 28, Taxes, fees and contributions 2,213, , Federal 1,344, , State 816,255 80, Municipal 52,821 14, Value distributed to providers of capital 1,531, , Interest 815, , Lease 715, , Value distributed to the owners of the parent 1,159, , Dividends 390, Retained Earnings / Loss for the Period 769, , Non-controlling interest (1.455) Total value added distributed 7,598,806 1,414, The notes are an integral part of these financial statements 10

13 1. Company Information (formerly denominated as Globex Utilidades S.A.), directly or through its subsidiaries ( Company or Via Varejo ) operates mainly in the electric and electronic, home appliance and furniture retail sectors. The Company's head offices are located in the city of São Caetano do Sul, state of São Paulo, Brazil. The Company also operates in finance sales made by the Company or through the loan portfolio of its associated company, Financeira Itaú CBD S.A. Crédito, Financiamento e Investimento ( FIC ). FIC also operates as a multiple bank with commercial and investment portfolios. Founded in 1946, the Company at December 31, 2013 operated 999 stores, 397 under the banner Ponto Frio and 602 under the banner Casas Bahia, which cover almost all the Brazilian territory, and also operates on a logistics infrastructure with 14 distribution centers. The Company s shares are traded on the Corporate Governance Level 2 of the São Paulo Stock Exchange ( BM&FBovespa ) under the issuer symbols VVAR3 and VVAR11". Via Varejo is controlled by Companhia Brasileira de Distribuição ( CBD or GPA ) which, in turn, is controlled by the French company Casino Guichard Perrachon. a) Corporate restructurings Merger of Nova Casa Bahia ( NCB ) At an Extraordinary Shareholders Meeting held on January 2, 2013, Via Varejo s shareholders approved all acts necessary for the merger of the wholly-owned subsidiary Nova Casa Bahia S.A. into the Company. The purpose of the merger was to simplify the companies organizational and corporate structures, reducing their administrative and operating costs. This corporate change neither impacted the Company s parent company and consolidated equity, nor the presentation of the consolidated financial statements, because NCB was already fully included in the Company s consolidated balances. However, the parent company financial statements were impacted by the existing balances on the merger date. Below are the effects on Via Varejo s balance sheet at January 2, 2013 resulting from the abovementioned merger of the subsidiary NCB: 11

14 1. Company Information -- Continued a) Corporate restructurings -- Continued Merger of Nova Casa Bahia -- Continued Cash and cash equivalents 1,879,961 Accounts receivable 2,004,015 Inventories 1,656,004 Recoverable taxes 438,959 Other current assets 115,298 Total current assets 6,094,237 Accounts receivable 108,499 Recoverable taxes 662,191 Other non-current assets 226,551 Investments 37,041 Property and equipment and intangible assets 710,751 Total non-current assets 1,745,033 Total assets 7,839,270 Suppliers 1,653,321 Loans and financing 2,534,281 Taxes payable 347,148 Other current liabilities 736,160 Total current liabilities 5,270,910 Loans and financing 595,682 Provision for legal claims 23,163 Other non-current liabilities 337,956 Total non-current liabilities 956,801 Total liabilities 6,227,711 Net assets merged 1,611,559 Via Varejo succeeded NCB in all its rights and obligations, being jointly liable for NCB s obligations, as provided for in Articles 227 and 232 of the Brazilian Corporate Law. 12

15 1. Company Information -- Continued b) Morzan Empreendimentos Arbitration On June 15, 2012, CBD received a letter from the International Chamber of Commerce ( ICC ), wherein it was notified about the arbitration proceeding filed by Morzan Empreendimentos e Participações Ltda. ( Morzan ), former parent company of Via Varejo. The Company, CBD and others are defendants to this proceeding. The arbitration proceeding refers to issues arising from the Stock Purchase Agreement entered into on June 8, 2009 between Morzan, acting as seller, and Mandala Empreendimentos e Participações S.A. ( Mandala ), acting as buyer, for the acquisition of 86,962,965 non-par, registered, common shares representing 70,2421% of the Company s total and voting capital stock ( Agreement ). Mandala was merged into the Company on December 22, 2009, which was succeeded by CBD in the arbitration proceeding. On July 11, 2012, CBD exercised its right to appoint an arbitrator to be part of the court of arbitration responsible for conducting the proceeding. The terms of the arbitration are subject to confidentiality obligations. Up to date, no developments referring to this proceeding have occurred, thus, not creating any impact on these financial statements. The Company will keep its shareholders and the market informed about any relevant developments referring to this Proceeding. c) Net asset valuation referring CBD and Casa Bahia Partnership Referring to the work of external consultants released to the market at October 16, 2012, August 7, 2013 and May 23, 2013 by CBD and Via Varejo, respectively, and work by legal counsels and experts engaged by the Company (jointly referred to as Engaged Consultants ), we hereby inform that these works were concluded in October 2013, and Management was able to hold negotiations in order to end discussions between the parties. After a judicious analysis of the corporate, legal and economic aspects, the Company, CB and CBD signed a transaction private instrument providing for the full, irrevocable and unrestricted settlement of matters arising from the Engaged Consultants work. As a result, in addition to the effects previously disclosed in the interim accounting information as at June 30, 2013, Via Varejo received indemnity from CB totaling R$85,000, comprising R$27,700 referring to amounts receivable accounted for by the Company and R$57,300 referring to receivables then deemed as contingent and, therefore, not accounted for. Receivables regarded as not liable to reimbursement by the parties were also written-off, totaling R$54,667 (see note 27). As a result, no additional accounting adjustments will be made related to this issue. The balance of accounts receivable with CB and CBD at December 31, 2013 is duly supported by the partnership agreement in force and expressly provided for as receivable. 13

16 1. Company Information -- Continued d) Performance Commitment Agreement As per Material Fact disclosed on April 17, 2013, the Company, its shareholders CBD and Casa Bahia Comercial Ltda. ( CB ), jointly referred to as Committed Parties, and the Brazilian Antitrust Agency ( CADE ) signed a Performance Commitment Instrument ( TCD ) to approve the Partnership Agreement entered into between CBD and CB on December 4, 2009 and amended on July 1, 2010, and whose purpose is to establish measures that: (1) prevent that the unification of the Parties operations imply substantial elimination of competition; (2) ensure conditions for effective competition in the markets affected by the operation; (3) ensure conditions for competitors to rapidly and effectively enter the abovementioned markets; (4) ensure that the benefits arising from the partnership be equally distributed between its participants and among the final consumers of those specific markets. In order to meet the TCD s objectives, the Company and its shareholders have the main obligation of selling 74 stores, located at 54 cities in six states and the Federal District, jointly representing approximately 3% of Via Varejo s consolidated gross sales in the years ended December 31, 2013 and 2012). Up to December 31, 2013, a total of 35 stores were sold and, up to the approval date of these financial statements by the Board of Directors, the condition precedent agreement defined at the TCD had not been approved may exert material influence on the final sale value of the stores. The Company does not expect to recognize losses arising from the non-realization of assets due to the sale of these stores. On December 31, 2013, a provision of R$30,363 for the remaining 39 stores not yet sold was recorded, which covers their residual fixed assets and the fine charged from the Company if they are not sold. CADE has overseen the fulfillment of the obligations assumed in the TCD, and the Company is subject to present all the data and information that the entity deems necessary. e) Divestment Nova Pontocom The Company sold its 6.2% interest in Nova Pontocom Comércio Eletrônico S.A. ( Nova Pontocom or Nova.com ) to the parent company CBD at October 17, All the information about this operation is mentioned in Note 32(a). 14

17 1. Company Information -- Continued d) Acquisition of Bartira The Company acquired 75% of Indústria de Móveis Bartira ( Bartira ) at December 2, 2013 for R$212,273. All the information about this operation is mentioned in Note 32(b). e) Secondary Offering The Company conducted a secondary offering in December CBD and CB tendered a total of 28.8% of the Company s shares and now hold 43.3% and 27.3%, respectively, of the Company s total capital. The secondary offering costs were borne by the Company, as provided for in the Shareholders Agreement, and totaled R$88,457. See Note 24(f). 15

18 2. Basis of preparation The items included in the financial statements of the parent company its subsidiaries were measured adopting the currency of the main economic environment where the subsidiary operates ( functional currency ). The parent company and consolidated financial statements are stated in Brazilian Reais, which is the functional and reporting currency of the Company and its subsidiaries. Non-financial data included in these financial statements, such as number of stores and distribution centers and others, were not subject to audit by our independent auditors. The financial statements for the year ended December 31, 2013 were approved by the Board of Directors at February 12, The parent company and consolidated financial statements were prepared and presented according to the accounting practices adopted in Brazil, which comprise the rules of the Brazilian Securities and Exchange Commission ( CVM ) and the standards of the Accounting Standards Committee (CPC ), which are in conformity with International Financial Reporting Standards ( IFRS ) issued by the International Accounting Standards Board ( IASB ). In the parent company financial statements, investments in subsidiaries are assessed by the equity method, while, pursuant to IFRS, these would be stated at cost or fair value. However, there are no differences between equity and the consolidated result reported by the Company and the parent company equity and the result in the parent company financial statements. The balances of the merged subsidiary NCB are fully included in the Parent Company s financial statements. Therefore, the Parent Company s balances at December 31, 2013 are not comparable to periods prior to the merger. As mentioned in Notes 1(e) and 32(a), the Company sold the control of Nova Pontocom. Pursuant to CPC 31, the Company must disclosure, in a single line in the statement of income, the effects of discontinued operations (total net income after income taxes), including the portion attributable to controlling and non-controlling shareholders. As a result, the statements of income, cash flows and value added for 2012 were restated. Thus, Nova Pontocom s equity balances are fully excluded from the consolidated financial statements. Thus, consolidated balance sheet balances at December 31, 2013 are not comparable to periods prior to the sale of control. In the charts of the following notes to the financial statements, Bartira acquisition equity values are in the column/ item Acquisition, and the equity balances on the sale date of Nova Pontocom are located in the column/item Deconsolidation. 16

19 3. Basis of consolidation a) Interest in subsidiaries, affiliated and associated companies Interest (%) Indirect Via interest Varejo Indirect interest Investments Via Varejo Subsidiaries: Indústria de Móveis Bartira Ltda. ( Bartira ) (d) 99.99% 0.01% - - Globex Administração e Serviços Ltda. ( GAS ) 99.99% 0.01% 99.99% 0.01% Rio Expresso Com. Atacadista de Eletrodomésticos Ltda. ( FACT ) 99.99% 0.01% % - Lake Niassa Empreendimentos e Participações Ltda. ( LAKE ) 99.99% 0.01% 99.99% 0.01% Ponto Frio Adm. e Importação de Bens Ltda. ( PFAB ) 99.99% % - Sabara S.A % % - Pontocred Negócios de Varejo Ltda. ( PCRE ) 99.50% 0.50% 99.50% 0.50% Nova Casa Bahia S.A. ( NCB ) % - Globex Administração de Consórcio Ltda. ( GAC ) 99.95% 0.05% 99.99% 0.01% Átino Consultoria Ltda. (b.2) % 99.90% - Casa Bahia Contact Center Ltda. ( CBCC ) 99.99% 0.01% 0.01% 99.99% Globex Fundo de Investimentos em Direitos Creditórios ( FIDC ) (b.1) % - Nova Pontocom Comércio Eletrônico S.A. ( Nova Pontocom or Nova.com ) % - E-Hub Consultoria, Participações e Comércio S.A % Nova Experiência Pontocom S.A % Joint operation: Indústria de Móveis Bartira Ltda. (d) % Associates: Nova Pontocom Comércio Eletrônico S.A. (c.2) 43.90% E-Hub Consultoria, Participações e Comércio S.A % - - Nova Experiência Pontocom S.A % - - Financeira Itaú CBD S.A. ( FIC ) (c.1) % % Banco Investcred Unibanco S.A. ( BINV ) (c.1) % % FIC Promotora de Vendas Ltda % % b) Subsidiaries The consolidated financial statements include the financial statements of all the subsidiaries directly or indirectly controlled by the Company. Subsidiaries are all entities (including special purpose entities) over which the Company has control. The Company controls an entity when it is exposed to, or has rights over, its variable returns as a result of such involvement with the investee, and the investor s returns arising from said relation has the potential of varying according to the investee s performance. Subsidiaries are fully consolidated as of the date of acquisition, which corresponds to the date on which the Company obtains control over them, and excluded from consolidation, if applicable, as of the date on which this control ceases to exist. 17

20 3. Basis of consolidation Continued 18 b) Subsidiaries -- Continued The financial statements of the subsidiaries are prepared on the same closing date as those of the Company, using consistent accounting policies. All balances between the parent company, including revenue and expenses, unrealized gains and losses and dividends resulting from intra-group transactions, are fully eliminated. Gains or losses arising from changes in equity interest in subsidiaries which do not result in loss of control are directly recorded in equity. Losses are attributed to the non-controlling interest, even if that results in a deficit balance. b.1) Globex FIDC The Company consolidated the financial statements of Globex FIDC, which represented an investment fund solely composed to conduct the securitization of the Company s and its subsidiaries receivables. The consolidation was justified by default risks, custody and management expenses referring to the fund were linked to subordinated quotas held by the Company and its subsidiaries. The operations with Globex FIDC were discontinued on March 26, 2013, see note 9. b.2) Átino c) Associates The Company Nova Extra Eletro Comercial Ltda. changed its corporate name to Átino Consultoria Ltda. The Company transferred the control of this subsidiary to the subsidiary FACT. Associates are entities on which the Company has significant influence, but does not control its activities. They are initially recognized at cost or fair value, depending on the case, and their results are accounted for according to the equity method. The statement of income for the year reflects the share of the results of operations of the associates. Whenever a change is recognized directly in the associates equity, the Company recognizes its contribution in said eventual changes and discloses this, if applicable, in the statement of changes in equity. Unrealized gains and losses resulting from transactions between the Company and the associates are eliminated proportionally to the interest in the associates. The associates financial statements are prepared at the same reporting date as those of the Company and, when necessary, adjustments are made to adjust the accounting policies in line to those of the Company. After applying the equity method, the Company determines if it is necessary to recognize an impairment loss related to the Company s investment in associates. On each reporting date, the Company verifies if there is any evidence that its investment in associates will not be

21 recoverable. When applicable, the Company calculates the impairment amount as the difference between the investment s recoverable amount and its carrying amount and records this loss in the statement of income for the year. 3. Basis of consolidation -- Continued c) Associates -- Continued c.1) BINV and FIC The Company s investments in its associates BINV and FIC, both institutions that finance sales directly to GPA and Via Varejo clients, result from a partnership between Banco Itaú Unibanco S.A. ( Itaú Unibanco ) and GPA and Via Varejo. The Company has significant influence by participating in the associates Board of Directors, but not control. Itaú Unibanco has the power over relevant activities, especially those related to the operational and financial decisions regarding BINV and FIC. The summarized financial statements of FIC are the following: Consolidated Current assets 3,521,683 3,384,723 Non-current assets 32,210 43,171 Total assets 3,553,893 3,427,894 Current liabilities 2,826,368 2,768,570 Non-current liabilities 23,192 18,710 Equity 704, ,614 Total liabilities and equity 3,553,893 3,427,894 Statement of income: Revenues 895, ,814 Operating results 157,764 66,671 Net income for the year 87,939 39,268 19

22 3. Basis of consolidation -- Continued c) Associates -- Continued c.2) Nova.com As shown in note 32(a), the Company sold the control of Nova.com in October 2013, but it still has significant influence through the participation of two officers in the associate s Board of Directors. Nova Pontocom's financial statements are summarized as follows: Current assets 1,428,041 Non-current assets 534,844 Total assets 1,962,885 Current liabilities 1,901,485 Non-current liabilities 6,917 Equity 54,483 Total liabilities and equity 1,962,885 Statement of income: 4Q13(*) Revenues 1,415,276 Operating results 49,596 Net income for the year 2,204 (*) Information on results refers only for the period between October 1, and December 31, 2013, i.e., after the deconsolidation of Nova Pontocom from the Company. d) Interest in joint operation - Bartira Until October 31, 2013, the Company had direct interest in one joint business, classified as joint operation as per CPC 19R2 (IFRS 11), denominated Bartira, in which the participants (Via Varejo, holding 25%, and CB, the remaining 75%) signed a partnership agreement that established shared control over the entities operating activities. The partnership agreement required that decisions about relevant activities were made unanimously, especially those regarding Bartira s financial and operating policies. 20

23 3. Basis of consolidation -- Continued d) Interest in joint operation - Bartira -- Continued The Company recognized in its financial statements its interest in the joint operation using the proportionate consolidation method. Therefore, it combined its proportional share in each asset, liability, income and expenses of the joint operation with the respective item line by line in its consolidated financial statements. The joint operation s financial statements were prepared for the same period and under the same accounting practices adopted by the Company. Below, the main items of Bartira s condensed financial statements for the fiscal year ended 2012 and for the 10-month period ended October 31, 2013, when Bartira was reclassified from joint operation to subsidiary % 100% Current assets 79, ,196 Non-current assets 92,465 73,244 Total assets 171, ,440 Current liabilities 91, ,500 Non-current liabilities 9,451 16,440 Equity 71, ,500 Total liabilities and equity 171, ,440 Statement of operations Net operating revenue 450, ,048 Profit before income taxes (40,828) 5,516 Net income (loss) for the year (30,987) 68 On October 31, 2013, the Extraordinary Shareholders Meeting approved the Company s acquisition of the remaining portion of the capital stock of Indústria de Móveis Bartira Ltda., held by Casa Bahia Comercial Ltda., through the exercise of stock option recorded by Companhia Brasileira de Distribuição and assigned to the Company on the same date, within the scope of business combination carried out in 2010, which resulted in the foundation of As of that date, Via Varejo consolidates Bartira as a whollyowned subsidiary. The transfer of Bartira's control is described in Note 32 (b). 21

24 4. Significant accounting practices a) Financial instruments Financial instruments are recognized on the trade date and recorded at fair value plus transaction costs directly attributable to their acquisition or issue. They are subsequently measured at the end of each reporting period according to the rules established for each category of financial assets and liabilities. Note 18 analyzes the fair value of financial instruments and additional details on how it is measured. (i) Financial assets Initial recognition and measurement The financial assets held by the Company and its subsidiaries within the scope of CPC 38 (IAS 39) are classified as financial assets measured at fair value through profit or loss, loans and receivables, and derivative financial instruments designated as hedge instruments. The Company and its subsidiaries determine the classification of its financial assets at initial recognition. Financial assets are initially recognized and measured by fair value through profit or loss and transaction costs are expensed in the statement of income for the year. Loans and receivables are accounted for their amortized cost. Purchases or sales of financial assets that require the assets to be delivered within a timeframe established by regulations or market conventions (business as usual trades) are recognized at the trade date, i.e., on the date that the Company and its subsidiaries commit to purchase or sell the asset. The financial assets of the Company and its subsidiaries include cash and cash equivalents, accounts receivable, related-party receivables, judicial deposits and derivative financial instruments. Subsequent measurement Financial assets measured at fair value through profit or loss: are measured at fair value at the end of each balance sheet date. Interest rates, monetary and exchange rate variations and variations arising from the fair value valuation are recognized in the statement of income for the year as finance income or expenses, when incurred and are classified at fair value in profit or loss if they have been acquired for the purpose of selling or repurchasing in the short term, with changes recognized under finance income or finance expenses. 22

25 4. Significant accounting practices --Continued a) Financial instruments--continued (i) Financial assets--continued Subsequent measurement--continued Loans and receivables: these are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After the initial recognition, they are measured at amortized cost using the effective interest rate method. Interest income, monetary and exchange rate variations, less depreciation, if applicable, are recognized in the statement of income for the year as finance income or expenses, when incurred; and Held-to-maturity financial assets: financial assets that cannot be classified as loans and receivables as they are quoted in an active market. In this case, these financial assets are acquired with the intent and financial ability to be held to maturity. They are stated at their acquisition cost plus income earned against profit or loss for the year using the effective interest rate method. Derecognition of financial assets A financial asset (or, if applicable, a part of a financial asset or a part of a group of similar financial assets) is derecognized when: Its right to receive cash flows has expired; and The Company and its subsidiaries have transferred the right to receive cash flows or undertake to fully transfer the received cash flows to a third party under a passthrough arrangement; and either (a) the Company has transferred substantially all the risks and rewards related to the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards related to the asset, but has transferred its control. When the Company assigns its rights to receive cash flows from an asset or has entered into a pass-through arrangement, without having transferred or retained substantially all the risks and rewards related to the asset or transferred control of the asset, the asset is maintained and recognizes corresponding liabilities. The asset and corresponding liability are measured so that to reflect the rights and obligations retained by the Company and its subsidiaries. 23

26 4. Significant accounting practices--continued a) Financial instruments Continued (i) Financial assets--continued Impairment of financial assets At the end of the reporting periods, the Company and its subsidiaries verify if there is any indication of impairment of a financial asset or group of financial assets. The impairment of a financial asset or group of financial assets is only considered when there is objective evidence resulting from one or more events occurred after the asset s initial recognition ( loss event ) and if said event affects the estimated future cash flows of the financial asset or group of financial assets, which can be safely estimated. The evidence of impairment may include indications that debtors (or group of debtors) are going through significant financial difficulty, default or delinquency in interest or principal payments; likelihood that they will file for bankruptcy or another type of financial reorganization; and when these data indicate a measurable decrease in estimated future cash flows, such as change in arrears or economic conditions that correlates with default. Impairment is measured as the difference between the carrying amount of an asset and the present value of the estimated future cash flows (excluding future credit losses that have not been incurred) discounted by the original effective interest rate of the financial asset. The asset s carrying amount decreases through the use of a provision and the impairment loss is recognized in the statement of income for the year. Interest income is recorded in the financial statements as part of the finance income. In case of loans or held-to-maturity investments with variable interest rates, the Company measures the impairment based on the fair value of instrument adopting an observable market price. If, in a subsequent period, impairment decreases and this reduction can be objectively associated with an event occurred after the recognition of the provision (such as an improvement in a debtor s credit rating), the reversal of the previously recognized impairment loss is recognized in the statement of income for the year. If a write-off is later recovered, this recovery is also recognized in the statement of income for the year. 24

27 4. Significant accounting practices--continued a) Financial instruments Continued (ii) Financial liabilities The financial liabilities under the scope of CPC 38 (IAS 39) are classified as financial liabilities at fair value through profit and loss, loans and borrowings, derivatives or financial instruments designated as hedge instruments in an effective hedge relationship, where applicable. The Company determines the classification of its financial liabilities upon their initial recognition. All financial liabilities are initially recognized at fair value, and, in the case of loans and financing, plus directly attributable transaction costs. The Company s financial liabilities include loans and financing, debentures and derivative financial instruments. Subsequent measurement After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the effective interest rate method. Gains and losses are recognized in the statement of income for the year when the liabilities are derecognized as well as through amortization according to the effective interest rate method. Derecognition of financial liabilities A financial liability is derecognized when the underlying obligation is settled, cancelled or expired. When an existing financial liability is replaced by another from the same lender, on substantially different terms, or the terms of an existing liability are substantially modified, this replacement or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in profit or loss. Offsetting of financial instruments Financial assets and liabilities are offset and stated net in the balance sheet, only if the recognized amounts can be offset and there is an intention of settling them on a net basis or realizing the assets and settling the liabilities simultaneously. 25

28 4. Significant accounting practices--continued b) Foreign currency transactions Foreign currency transactions are recognized at exchange rate of corresponding currencies at the date the transaction qualifies for recognition. Monetary assets and liabilities denominated in foreign currency are translated into Real according to exchange rates at the balance sheet dates. Differences arising in payment or translation of monetary items are recognized in profit or loss. c) Hedge accounting The Company uses derivative financial instruments such as interest rate and currency swaps. These derivative financial instruments are initially recognized at fair value at the date a derivative contract is entered into and are subsequently re-measured at fair value at the end of each balance sheet date. Derivatives are accounted for as financial assets when their fair value is positive and as financial liabilities when their fair value is negative. Any gains or losses arising from changes in the fair value of derivatives are directly recorded in statement of income for the year. At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which it wishes to apply hedge accounting, and its objective and risk management strategy for contracting the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the Company will assess the effectiveness of the changes in the hedging instrument s fair value in offsetting the exposure to changes in the fair value of the hedged item or cash flow attributable to the hedged risk. These hedges are expected to be highly effective in offsetting changes in the fair value or cash flow and are assessed on an ongoing basis to determine if they actually have been highly effective throughout the years of the financial reports for which they were designated. For the purposes of hedge accounting, these are classified as fair value hedges when hedging the exposure to changes in the fair value of a recognized asset or liability. They are recorded as fair value hedge, observing the following procedures: The change in the fair value of a derivative financial instrument classified as interest rate hedging is recognized as financial result. The change in the fair value of the hedged item is recorded as a part of the carrying amount of the hedged item and is recognized in the statement of income for the year; For fair value hedges relating to items accounted for at amortized cost, the adjustment to the carrying amount is amortized in profit or loss over the remaining term to maturity. Effective interest rate amortization may begin as soon as an adjustment exists and shall begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the hedged risk; 26